Question

Takelmer Industries has a different WACC for each of three types of projects. Lowminusrisk projects have a WACC of​ 8.00%, averageminusrisk projects a WACC of​ 10.00%, and highminusrisk projects a WACC of​ 12%. Which of the following projects do you recommend the firm​ accept? Project Level of Risk IRR A Low ​9.50% B Average ​8.50% C Average ​7.50% D Low ​9.50% E High ​14.50% F High ​17.50% G Average ​11.50%

A. ​E, F, G

B. ​B, C,​ E, F, G

C. ​A, B,​ C, D,​ E, F, G

D. ​A, B,​ C, D, G E. ​A, D,​ E, F,​ G,

Answer 1

Given,
Project	Level of risk	IRR	WACC	Decision	Basis of decision
A	Low	9.50%	8%	Accept	Since WACC is less than IRR, so project is generating value therefore accept it
B	Average	8.50%	10%	Don't accept	Since WACC is more than IRR, so project should not be accepted
C	Average	7.50%	10%	Don't accept	Since WACC is more than IRR, so project should not be accepted
D	Low	9.50%	8%	Accept	Since WACC is less than IRR, so project is generating value therefore accept it
E	High	14.50%	12%	Accept	Since WACC is less than IRR, so project is generating value therefore accept it
F	High	17.50%	12%	Accept	Since WACC is less than IRR, so project is generating value therefore accept it
G	Average	11.50%	10%	Accept	Since WACC is less than IRR, so project is generating value therefore accept it
Answer: Option E